FTSE execs demand fat-cat pay

Senior executives at Britain's multinational companies are clamouring for major pay increases to bring them into line with their American counterparts.

Companies have been in contact with their biggest shareholders to persuade them that top directors need more money.

They point to the discrepancy between British and US remuneration and say substantial pay rises are needed to keep executives and recruit new ones.

The demands could prove embarrassing for the Government, which is enthusiastic about US business practices but does not want to be seen as supportive of a fat-cat culture.

Discussions are taking place between remuneration committees and investors, as companies prepare to publish their annual reports. These are expected to reveal a number of new proposals for executive pay. 'Every multinational in the FTSE 100 is producing arguments for significant increases in remuneration,' said one institutional investor.

The most demanding executives tend to be found in the pharmaceuticals, oil and media sectors, including internet-related stocks. These types of companies paid their top earners upwards of £1 million last year while the average pay for Footsie chief executives was more than £500,000.

US executive base salaries tend to be between 5% and 10% higher than their British counterparts, but bonuses are generally twice as high and annual option payments are four times more generous.

In Britain, bonuses typically amount to around 33% of an executive's salary, and option packages would not exceed the base salary total. In the US, bonuses tend to be at least two-thirds of salary and options are four times the base pay.

The difference is particularly marked because US options are based on share price performance and have ballooned in line with the stock market.

British institutions dislike these types of options, pointing out that a rising share price can be related more to the behaviour of the market than a company's earnings growth.

'It is vital to see a correlation between pay and performance. It is also important to set some limits. There has be a trade-off between the interests of shareholders and executives,' said one fund manager.

Within the Footsie, more than 20 companies earn at least one-third of their income from the US while the vast majority of top companies have some exposure to the States.